China austerity drive to impact until 2017

The impact of China’s austerity campaign will be felt on luxury alcoholic drinks sector for a further two years, according to Kiki Yang, partner at Bain management consulting in Hong Kong.

BaijiuSpeaking at the Wine in China Conference in Hong Kong on 5 November, Yang said that the crackdown on spending among government officials would continue to affect the luxury drinks market until at least the end of 2016, but added that the campaign’s effect should diminish from 2017 onwards.

“While the leading Baijiu brands thought that things had bottomed out 12 months ago, it hasn’t, and the austerity campaign will probably continue for another two years, although people expect it to dissipate in the next 3-5 years,” she said at the event, which was hosted by Debra Meiburg MW.

The austerity drive was begun almost 18 months ago by Chinese President Xi Jinping and has already cut $8.6 billion in public spending, according to state media.

Looking back over the last four years, Yang described China as “the dream market for all luxury brands in 2010,” and recorded that sales growth for the luxury sector was 30% between 2010 and 2011.

“It started slowing down in 2012 to become almost stagnant in 2013 when the government austerity and anti-corruption campaign began,” she continued.

Exemplifying the effect of the measure, she said that sales of watches were currently 11% down, but had been up 40% in 2010.

Nevertheless, Yang said that the Chinese were spending more on luxury goods outside their domestic market.

“There is a growing luxury spend [by Chinese] outside Mainland China, so they are making up in overseas spending… luxury spending overseas was up 33% in 2012-2013,” she recorded.

While Hong Kong and Macau were previously the main places for Chinese overseas spending, the focus has now shifted to Europe, in particular Paris, according to Yang, adding that this phenomena could in part be explained by the favourable euro-exchange rate.

She also said that Chinese tastes’ in luxury goods has become more sophisticated.

“They are migrating from ‘in the show” to ‘in the know’, and they are switching very quickly… it is a way of showing sophistication,” she commented

Looking at the trends in drinks sales she said that the austerity campaign had affected the baijiu sector in particular.

While the rate of sales growth in wine and beer have both slowed, Baijiu sales have stagnated (see below). “Baijiu sales are flat overall, but the premium sector is down by up to 20% because people are drinking it for consumption, but not for business entertaining,” she explained.

Yang said that wine was to some extent being consumed at business lunches and dinners in place of top-end Baijiu brands, although she stressed that wine was a small part of the market: “Wine is only about 6% of the Chinese alcohol market, people are just getting into it,” she stated.

Wine sales

2008-2012: up 17.8%
2012-2013: up 3.3%

Beer sales

2008-2012: up 10.1%
2012-2013: up 9.9%

Baijiu sales

2008-2012: up 28.4%
2012-2013: up 0%

Leave a Reply

Your email address will not be published. Required fields are marked *

Subscribe to our newsletters

Wine Trader

Vintage Capital II PLC
London, UK

International Marketing Assistant

Paris, France

Senior Partner Manager - Managed On-Trade

Maverick Drinks
United Kingdom

Brand Activation Executive

Pernod Ricard UK
London, UK

Logistics Administrator

Swig Wines Ltd

Customer Service Manager

Jascots Wine Merchants
London, UK

Transport Manager

Jascots Wine Merchants
London, UK

Head of Customer Services

Berkmann Wine Cellars
London, UK

International Logistics Manager

Wine Source
London, UK

PR Manager

Master of Malt
Tonbridge, UK

International Bulk Wine & Spirits Show (IBWSS)

25th Jul 2018

Cape Wine 2018

Cape Town,South Africa
12th Sep 2018

The Wine & Spirits Show

London,United Kingdom
12th Oct 2018
Click to view more

The Global Malbec Masters 2018

Deadline : 1st August 2018

Champagne Masters 2018

Deadline : 1st August 2018

Click to view more

The Global Malbec Masters 2017

the drinks business is proud to announce the inaugural Global Malbec Masters 2017

The Global Sparkling Masters 2017

the drinks business is thrilled to announce the launch of The Global Sparkling Masters.

Click to view more